2023-04-20 07:00:00 ET
Summary
- Ayr Wellness CEO David Goubert discuses working through debt and strategizing for positive free cash flow.
- Pricing, margins and inventory.
- Integrating acquisitions; updates on Florida and Nevada.
- Happy 4/20 to our CanPod community!
Listen on the go! Subscribe to The Cannabis Investing Podcast on Apple Podcasts or Spotify .
David Goubert, recently minted CEO and President of Ayr Wellness ( AYRWF ), discuses coming on board (3:00), working through debt , strategizing for positive free cash flow (19:00), pricing, margins and inventory (25:30), and integrating acquisitions; updates on Florida and Nevada (33:00).
Transcript
Rena Sherbill: David, welcome to the Cannabis Investing Podcast, really excited and honored to have you on the show. So thanks for coming on.
David Goubert: Well, thank you for having me, Rena. I'm very, very happy to be with you and to be here today.
RS: Happy to have you on. We were talking about -- we had Jonathan Sandelman on a number of times , the former CEO of Ayr, but still involved with the company. So, great to talk to you, and there's a lot of excitement I know from the Seeking Alpha audience , about you coming on board, and investors in general very excited about the experience and the background you have, and what you're bringing to the industry.
So really excited to get a one-on-one conversation and get into it. I think, I'd love to start from just sharing with investors, I know some may already know the broad strokes of where you're coming from. But if you could share with investors what brought you to the cannabis industry? Why Ayr specifically? And maybe briefly where you're coming from in the past?
DG: Yes. I would love to do that. So maybe you guys already picked up on that. I'm French. You can tell that from the accent. I grew up in France and I have an engineer degree. I started working a bit in supply chain initially and in manufacturing for quite some years. And then got into luxury pretty quickly - into luxury industry and started working with LVMH, where for few years, I worked in supply chain, in manufacturing, in France and in U.S.
And then got a bit of a bug for retail, so asked to transfer to more of retail functions and then still with LVMH ( LVMHF ) and still with - on the beginning, I worked for a few years managing stores, facing day in, day out in stores and then into more of general management and marketing and so on. So I've had, let's say, till now about 30 years in my career, and you could say that half of that has very much been to supply chain and manufacturing, and half of that has been more customer facing in retail functions, marketing functions, customer functions and overall - general management of different companies.
And I have been fortunate to be in great places and in places where we build success. And at some point, I would say, maybe starting about two years ago started thinking that I wanted to have a chance to work in a different industry and have a chance to bring some of my experience to a different industry. And at the same time, if I find an industry that was very much purpose led, where I could feel that my contribution would be the contribution to a very good in general. And I met with Jon about a bit more than a year ago, a year and a half ago, not that much in February of last year.
And we started really talking about the industry and talking about Ayr and all our initial conversations were very much about the company being a force for good and about the industry doing good and making a difference. And I started digging into that and into the industry and really realizing that that it was a place that could fulfill my need for the purpose. And then at the same time, an industry - that's vertically integrated where they experience in supply chain, in manufacturing, in retail, in marketing could make sense for me to contribute.
And then more specifically about Ayr, I realized that my experiences along the years have been with rather larger than Ayr companies. But at the same time, I felt that being in a company that from the lifecycle, now Ayr is about four years old. And from a size, let's say, $0.5 billion, then the expertise or the experience that I’ve had and the skill set could probably translate well with where Ayr is right now, meaning that it's young enough that it hasn't been optimized 10 times. It's big enough that we have the -- really the leverage to optimize and scale the company.
And somehow the experience I've had can help in doing that. So when you put these things together, the need for purpose, the experience of a vertically integrated that touched all these functions, and then the size of the company and the lifecycle, all that seem to make a lot of sense together. And now I'm about six months in. I mean, in four weeks, I'll be - six months in. And I'm very happy to say that that I think it does make sense. And I feel like it's checking the different points on these three elements.
RS: It's interesting, there's so much discussion about the focus on CPG now in the cannabis world. And we were talking to Ascend ( AAWH ), a few weeks ago on the podcast , and they were looking for a CEO, and they were talking about wanting to have the CPG focus. And something that I brought up is, that there are number of companies that have wanted the CPG focus, and that hasn't necessarily helped them and maybe there were overwhelming previous issues that were preventing that.
But you can really only point to maybe a few. I wouldn't say more than a few companies that have gotten there right, being led by somebody. Well, I would say at all, but also somebody coming from CPG. What would you say? And six months on a job, I would say maybe you have some understanding, if not a full understanding of the full thing, but I would say a pretty good handle on what you're looking at on a realistic level. What would you say are the things that maybe haven't been done right up until now? And that you feel are salient to do the job, right?
DG: So maybe rather than talking about what hasn't worked and hasn't been done in other experiences that I'm not necessarily familiar with, I'd rather maybe talk about a couple of things. The first one is, personally, my passion is into leading teams, building teams together and making sure that the teams are focused on the same things and of really clear priorities. And I'll come back to the priority and if - I look back now six months in, probably the thing that I'm the most proud of today, is building that team together and where we are from having built that team.
And second, the clarity on the priorities that we have for the year '23 and some ideas about '24 and '25. So I think that more than an expertise in this or that. I think the one thing that has been really helpful, is that I'm not going to say expertise, but truly passion into building teams together, making teams click well together and ensuring that we have their priorities. So that probably is the first thing that has been - not going to say a good surprise, but has been something that has been great over the past few months.
The second part of the answer is, trying to make sense of this business, right? Like, I came in November took two months in November and December really on the road visiting all our dispensaries, all our cultivation sites over the eight states and really meeting people to right, ask everyone why do you work in cannabis and what is this industry? And try to make sense of this. And came about at some point to the idea that an MSO is actually two businesses, it's not one business. It's on one side it's actually a retailer, right? So retail business.
And on the other side, it's a house of brands. And it's really two different things. On one side, you have companies that are very focused on being the best retailer possible. And you have other brands that don't necessarily have stores, but are really focused on building product brands, having the right quality for the products and knowing really well how to distribute these products. MSOs, is very interesting industry, meaning the cannabis industry where you actually have both at the same time.
You have a retailer and you have house of brand. And one could ask, by the way, does it make sense to have both under one roof or should we be considering looking at it differently? And then, I really think it makes sense to have both under the same roof, because on one side as a retailer, the only asset of retailer today was not true 10 years, 20 years ago. But today, the only asset of retailer is its customer base and building a loyalty customer base, a loyal customer base. And on the other side for CPG, company or a house of brands, your only assets is the equity that you builded brands and the quality of the products that you deliver under those brands.
And the reason why it makes sense to have both under one roof is that in both cases you build a customer base for retail, and then the following, let's say of customers for your brands. And when you put the two together, as you build your retail, you actually can get your brands exposed in the retail that you have and that build - brings equity. On the other side, as you keep building brand equity through wholesale, through social media, the mini sites, and so on for your brands, you actually can pull that - customer base into your stores.
So having the two actually create a flywheel that turn into a virtuous circle in terms of how you grow business. Now back to your question of what's working so far? How is it working or why did it not work before? Again, I'm not going to talk - why it did not work in other cases. But for us, having that clarity on this is who we are. These are the three assets that we need to focus on. Let's make sure we're super clear on the focus and the priorities for the company around those three assets, meaning loyal, retail, customer base, true brand equity and quality of products.
And making sure that we build the team that's able to achieve those objectives, it's very much what the focus has been for us. And therefore, the experience that I had before, whether in manufacturing, supply chain, retail, et cetera can help, I think, in trying to open back together.
RS: Yes, your point to the notion of first of all, team building and integrating different people and integrating ethos. I think is - such an important point that, like, so many things is much easier said than done. And I think that it's really true like what you're talking about just to focus on that and to achieve that is a huge thing that many companies have not been able to do. And I think seeing you come on board?
There's, been some points that you can talk to that have been obvious shifts in strategy. There's, been some assets that you've gotten rid of. There's, been some assets that you've brought on. There's Jen Drake , who was with the company for a long time, recently resigned. And then also talking about the Liberty Health Science in Florida and integrating that into an Ayr brand. I imagine is it much, much, much more complicated than just saying, okay. Now here's, time to shift strategy. Time to tweak things a little bit. All those, I imagine, are very arduous undertakings. What do you feel like, I guess, how's that process going? And what, has been the most important thing for you as a leader to keep in mind looking at these changes and integrations and real human things, yes?
DG: No, one of the - so let's say that we start with a great foundation as a company. And there's a great foundation with all the work that's been done before in terms of being in the right states. We can talk about Arizona and why we decided to leave Arizona, but overall, being in the right states, also an enormous work that has been done on integrating 18 different companies into one and really having the right platform from a data standpoint and visibility of the business and then great teams as a foundation.
And I'm not going to say it's a surprise, because that's why I'm here, but whenever I meet someone, and again, as I was saying, I was on the road pretty much the first two months and kept on having interviews with anyone in the company that wanted to since then? My very first question to anyone is, why do you work in the cannabis industry? Not necessarily why do you work for Ayr, right? That's that comes after, but why do you work in the cannabis industry? And so far out of, really, I think hundreds of conversations.
I've got only once someone saying, because I needed a job. In every little - in every single case, it's about somehow how cannabis changed someone's life, either that person or someone around him. And then they work in cannabis, because they care and because they want to really be part of the change. And so back to your question about, being purpose led and changing teams and so on. This is amazing place to be when you can say that the people are working in industry and the people that are working in the company are here by passion. They are here for a reason that is not just having a job. It's bigger than that.
So from a cultural standpoint, from what we want to build together, that's a great place to be. I mean, it's what any leader would dream of and you have people in the company that are here by passion, not just because they need to have a job. So that has been, I'd say, an amazing realization that once again it was like hey, I'm in the right place. I came because of that and it's true. And then from there, you can actually build from - to have the right goals together and the right culture in the company together. But it has been, from that sense, a great confirmation. I would say of the importance of that in this industry.
RS: I have to say I feel the same thing and all the - I know that you just got back from Benzinga. And I would say that all the industry conferences that I've been to, it's something that has really struck me that people in all lanes of the industry from executives to people working and lighting to what have you, for the most part, have a real passion for cannabis. And it's something that we talk about even at Seeking Alpha where I'm like the investing side of thing is a little bleak right now. You know, investors are quite unhappy with what's happening, and there's - it sometimes there's just no way to get around that.
But what is being done in the industry? I mean its life changing things. It's not what's going to happen with Beyond Meat ( BYND ) stock, it's much larger than even plant-based protein, I think. It's something that's really going to affect things. And I think people that are have a hand in that are really passionate about that. And I would agree that that's something special about. Would you say that that's something I mean, working in different industries and coming here, would you say that that's something that is unique to the cannabis industry more so than other industries in terms of the passion for what's happening?
DG: I haven't experienced that somewhere else.
RS: Yes.
DG: I think that a lot of companies are trying to be purpose led or trying to find their purpose. The cannabis industry has a purpose. So you don't need to try to find it or try to create something. It's here. It's the foundation of this industry. You were talking about Benzinga. I was having a conversation with an Executive from another company in cannabis. And that's why I'm saying it's not only Ayr that I asked him that question, right? And his answer was well, the person that wanted to recruit me had a daughter that had epilepsy before using - maybe being treated with cannabis and that changed her life.
And since then, I was like, I'm in. I'm part of it. I'm going to be part of the change. So I think in my previous life and experiences, I think we're very proud for example, what we did at Neiman Marcus from a culture standpoint and the work that we did on Belonging actually, that was a very, very big topic. But really, we had to work on it and make it happen without necessarily having the same base and foundation that what you can find in an industry like this one.
RS: So speaking to this passion, I think the flip side of the passion is a lot of people came in with maybe too much passion or not enough of the other things that you need to survive in the industry. And we're seen as the investing community and as the consumer community. We're seeing what happens when a company can't survive and that's happening to a lot of players and people, are having to adjust. And one of the things that the analyst community seems to be focusing almost solely on at this point is free cash flow. And one of the things that, stops that from happening is a heavy debt load.
And Alan Brochstein , who's one of top analysts in the field was on the podcast a few months ago contextualizing AYR's debt -- because definitely a lot of investors point to that as one of the concerns. And Alan was saying that it's not due immediately, and he was drawing a few points to contextualize it and make it seem a lot less negative than those touting concerns. Can you share with investors the debt that you have on the books and how you're thinking about that is? And I know you talked about this on the earnings call a little bit, focusing on that metric?
DG: Yes. And thank you. I think the conversation we're having on the passion and on the team is extremely important. At the same time, very, very clearly, our number one priority is, is about cash, and it's about being cash flow positive while at the same time working through the debt, the debt maturity, and how we deal with this. Unfortunately, I cannot share about the how, right? We're focusing on the debt. Just as we shared before, it's a very clear focus that we're focused on right now.
And to your point, there isn't much debt and maturity that's due in '23, meaning most of it is in '24 and actually in December of '24, which gives us also a bit of run rate, but that doesn't mean you don't focus on it right now. So even if that maturity is more than 18 months from now, it's important for us to really be focused on it right now. I can't share the - how and what we're doing on it, but - it's a number one focus I would say in the company.
What I can share is that one of the best thing, that we can do and one of the things that is very important for us right now is, making sure that we can show that we're cash flow positive, operating cash flow positive in '23 and free cash flow positive very soon after that. And also, at the same time, show that from a cash standpoint, we're in a solid situation, I would say in '23 and going into '24.
So what I mean by that from a cash standpoint is that we've announced that we will be operating cash flow positive in '23. We were in the last two quarter of '22 and we will be for the overall year of '23 operating free cash flow. And then outside of the operating cash flow, the main use of cash is on CapEx. And so, the CapEx that used to be a very large amount, I would say, in previous years, especially to build the production capacity, they're actually only $30 million this year. And those $30 million are mainly used to increase the number of stores, like in Florida, for example, where we're growing by 20 stores and plan to grow by 20 stores this year.
And those $30 million are with high ROI and highly discretionary, meaning that we can decide at any time not to do it, if we feel that we should not. But what that means is that, we're going to be in '23 operating cash flow positive and slightly negative from a free cash flow. And as we turn to '24 and continue to grow, we're going to be free cash flow positive by that time. So overall, we are focused on the debt and focused on how do we manage that with to your point, majority of the maturity being at the end of '24. And at the same time, the most important thing for us right now is cash. How we get operating cash flow positive now and free cash flow positive in '24?
And then from a cash standpoint, what we shared in the Q4 earnings is that, we had at the end of Q4, $80 million of cash that when you take the sale of [our Arizona] [ph] a couple of other things, you actually add more than $20 million above that. So let's say we had a starting point of $100 million, we're operating cash flow positive. So even if I make that flat to be cautious, that's a $100 million. We have, if I take everything that is about serving the debt and paying debt that we have in '23, that's only $35 million.
So that gets us actually even if I - after removing that $30 million of CapEx on top of that, that gets us to $35 million minimum at the end of '23 of cash, which doesn't include anything that we can do from a real estate standpoint, and we still have numbers are known about $70 million of real estate and other things that we can do. So all that to say that there is no risk on cash, I would say, over that period of time, even if we are in a place where we serve the whole debt and if we use all the cash that we’ve planned to use on CapEx.
So between the focus on operating cash flow positive, the situation from a cash standpoint we are and the fact that we're managing the debt right now, that's how I can answer to your question from that balance sheet standpoint.
RS: And going forward, what would you say to give investors’ confidence in terms of or not necessarily to give them confidence, but how you're thinking about the idea of share buybacks or how you're looking at, any use of dilution in terms of the share price?
DG: Well, I think that the best way to be looking at that as you look at '24 and beyond is actually really looking at the generation of cash. Even without talking about any change from a regulation standpoint or any change of - say for 280E or anything like that. When you look at the way we run the business today and the trend that we're seeing from a business standpoint in the states we are, plus the efforts we're doing from a SG&A, on margin and so on.
The best way to look at that is very much to look at the ability to generate cash over the next few years as we continue to scale and optimize the company. And that's probably the best thing that we can talk about or that we can show actually, that can give confidence from an equity standpoint into the company. So maybe to color that a bit more for you, what I would say is, from a revenue standpoint based on the foundation that we have, we see a growth in pretty much every market that we have in 2023 beyond and we can talk about Florida, we can talk about New Jersey. I feel very good about Nevada as well.
We're investing into Ohio that will be a revenue growth for us in 2023. Massachusetts has been disappointing, but there's good things that start to happen from a wholesale standpoint and we know we need to ramp up retail at the same time. And then Pennsylvania is more of a flat story, but until we can get to adult use in that state. So overall, those states are very solid states. So what we are guiding to if you want is, growth of revenue that will continue in 2023 and beyond. We actually guide to a flat at least margin that was at 57% in Q4, because, and if we talk more about Florida in a bit, we do have price power and other actions that we can take from an internalization to increase margin.
So, even if there's some price compression in some states, we should be in a pretty good place from a margin standpoint. And that's a clear, I would say focus that we're having right now on pricing and margin. So, seeing that to be at least stable, I would say, and then there's a lot of efforts that we're doing right now from a cost saving standpoint. So, we've been through in Q1, some hard decisions from a right sizing capacity and finding efficiency. And then we're turning every stone from a cost efficiency standpoint that actually will pay off also from an EBITDA percentage standpoint.
So, we've guided to the fact that we were at 21% EBITDA in Q4 and we're going to be at 25% by the end of 2023. So, through that growth of revenue and through that let's say stabilization of margin at least, and the improvements from a cost saving and SG&A standpoint that gets us to a 25% EBITDA by the end of 2023. And then the last effort that I can speak about, I would say is, around inventory. We were not best in class from an inventory standpoint like we added 2022 with $116 million of inventory.
Best in class is, let's say 40% lower than that, I would say from an inventory standpoint, we've started taking actions from a right sizing, but also from supply chain processes to get to a much better place throughout 2023 and also free some working capital through an improvement of inventory. So that's going to be the other focus for us to be in a better place from, I would say a cash and a working capital standpoint.
RS: And as you're looking out, I mean, speaking of how you're pointing and thinking about and strategizing these points of growth, there’s something else that we've been talking about, Jerry Derevyanny from Bengal Capital was on a couple weeks ago talking about how investors are like, oh, you know, once the 280E tax is gone, look out to what these companies are able to report and his point was, there's just going to be another tax put on in its place. How do you think about that as there's so much talk about legalization and you have to keep abreast? I imagine somewhat of the different regulations coming at you. How are you thinking about that side of things?
DG: Yeah. So, I cannot comment about regulation and what would come after 280E from a taxation or other things stand point. The way I'm thinking about it is, there aren't that many industries that can deliver 25% EBITDA. And that's, I mean, if you were to work and if you were to talk about any other, a lot of other industries, we're talking I mean, I come from LVMH, right. We're talking about really great luxury companies that deliver that level of EBITDA. It’s not something that you see that much.
So from that standpoint, it's very healthy though, through the taxation, it ends up not being that healthy at the end or being less, I would say cash generating. So, the first way I'm looking at it is very much that the health of the EBITDA that we can generate. The second thing I'm looking at is, actually what's happening right now from a price standpoint, like a lot of the things that have happened in 2022, especially has been those tremendous price compression that have put a lot of pressure on this industry.
What we're seeing right now is actually more of a stabilization. And I would say, a way where supply and demand are getting to a place where we can actually stabilize prices and be in a good place. And I'm looking at that as being another thing that brings more health, I would say to the business than what has been more -- seen more recently or let's say in 2022.
RS: And anything that you would want to say about, you know, paying taxes in terms of how you strategize about that now, with your leadership?
DG: We haven't made any decision on that. That would be different than what we've been doing so far. So, we think that that's the strategy we've been taking from a cash standpoint and we're staying pretty consistent on the approach that we're having from a tax standpoint. I mean, we are continuing the way we were doing it.
RS: Okay. I'd love to get into…
DG: What I would tell you [indiscernible] about that is, it goes back to what I was sharing from a cash standpoint. Again, we're in a situation right now where not really having a point on having a different approach to it. We have a 100 million of cash right now and being operating cash flow positive and with CapEx that are quite limited in 2023, 2024, 2025 not having to make different decisions.
RS: So getting into Florida, you seem to be taking some market share and I imagine you are excited about things that are to come there and it's something that the investing community has very much been like, okay, what's going to happen with them in Florida? I'd love for you to, kind of share with investors how you're thinking and looking at that and also given the recent acquisition, how you're thinking about Nevada as well?
DG: So, let's start with Florida. Absolutely, very, very happy with Florida. Florida is a market that it is a key market, became our number one market. And really with very strong performance. If I look at Florida today, I would say that the efforts that have been made have been one bringing the quality of the products, the quality of the flower to a very, very solid grape quality right now. And at the same time, really developing a, a network of stores. We are at 59 stores very soon to be at 60 stores.
So, really getting that and getting to gain market share through that. And as we grow up the quality, we also grow up a much broader menu than what we could offer, let's say a year ago to our patients in Florida. What's exciting, I think for us in Florida is, one, we will continue to increase the number of stores. So, we have a chance to continue to lead with more stores and we should end the year around 75 stores if you compare to the 59 that we have today and the 55 we had at the beginning of the year.
So, we continue to increase the number of stores. That's one. Two for me is, what's very exciting is, is I think that we've improved the quality, we’ve improved the menu, but we haven't worked on having the right price and the right, I would say segment of prices of our products that reflect the quality of the experience and the quality of the menu and the products that we have.
So, a lot of work that's happening right now is, how do we grow the organic comp per store, meaning the volume per store that exist. And that is a lot also through pricing where I mean, we priced everything as being in the lower segment where the reality is that our quality is better than that now. So, we have actually price power in Florida that we started to work on. And let's be honest, I mean, we have a much higher market share in volume than we do in dollar, which means that we're not yet at the same average sales per store. Let's say our average dollar per unit than our competitors in – our key competitors in Florida.
And that was the right thing a year ago where we didn't have yet the right quality and the right menu. I think that right now we have more power, pricing power to improve that which improves volumes and margin at the same time. So, that's the second thing that we're very excited about in Florida. The third thing that we're excited and working on is that transition from Liberty Health Science to Ayr, cannabis dispensary as the retail name and the retail experience that we want to create. And then I'll talk a bit more about that. And then the fourth thing for us is, preparing adult use.
I don't know when it will happen. What we need to make sure of is that we're ready when it does and that's a key priority. And then so those I would say are the four priorities for us, continue to increase the number of stores, increase the sales per store, mainly on the pricing, moving into from Liberty Health Science to AYR Cannabis Dispensary and preparing for adults. On the moving to AYR Cannabis Dispensary, which is a key thing that will happen at the end of Q2 and early Q3 for us across the 59 stores, I think that it's, if I refer back to what I was sharing at the beginning saying that we want to build a loyal customer base and a strong customer base.
We really need to build the right experience and the same experience everywhere. And we need that experience to be recognized as one retail brand. AYR Cannabis Dispensary across the network. So, for us, it's very important to make that transition in Florida, but also in the other states. As we started in New Jersey, for example, as we want to build that same experience and have people really relate to our retail side of the company and AYR Cannabis Dispensary being that.
So that's about Florida. For Nevada and the recent announcement of the acquisition of Tahoe Hydro, I would say this is more of something that we started two years ago. We already started working on Tahoe Hydro with the team of Tahoe Hydro for a while. So, I would say that that right now is more of a, the final closing of the acquisition. But what I would share on Nevada is that we're very, very, I don't know if bullish is the right term, but feeling that it's a very important state.
We have the number one market share in the States around between 13% and 14% market share in Nevada. And we think that there's more growth to come and margin here again in Nevada through really working on the retail experience that we can offer six stores that we have that are really big stores and really work on that retail excellence, and how do we connect with customers? And that's where I would say bring also talent that knows how to manage those big bucks, meaning those are each way over $10 million stores and in any other retail industry, meaning that it, you have a lot of experts coming together on managing such volume.
And I think we have an opportunity to actually optimize and scale more our own network. And it's true in Nevada, it's true in New Jersey. It's true in other places by really bringing that retail excellence and at the same time that focus on the customer engagement. So, very focused on Nevada for sure.
RS: Was it clear to you when you came on pretty soon or did you have a vision about where to put your, where to allocate capital and where to take capital from or was it, kind of a robust conversation when you came on board?
DG: It's been a more of a journey of a robust conversation and on really taking the time to understand who are we and what are the assets that matter? And really that realization of, we're at the same time a retailer of choice and a house of brand. And if we want to be able to make that a flywheel, that is truly a positive flywheel where again, by building a loyal customer base, we can expose our brands.
By exposing our brands, we increased the following and we can actually push that to our store [indiscernible] positive flywheel by really putting that on paper and saying, hey, that means this is the assets that we need to focus on, but also we need to have a very clear depth and important market share to be able to make these work that's by doing that work that we could say that some places in some states, we needed to double down on the investments because they fit into that strategy and then other places not necessarily as much.
So, if we take the example of Arizona, I think our market share was 1.6% in that market and we could not really grow from a wholesale standpoint. It made sense for us to disinvest in Arizona because it didn't fit from a strategic standpoint to what I just shared before. And at the same time, that was the right decision from a balance sheet standpoint, right? So, when you put all that together, it became very clear to everyone that that was the right decision for us. Same thing when we decided to not invest as much in Illinois because we were not vertically integrated because we didn't have the number of stores that actually would get us to completely the right place yet in Illinois. And that was not the time now to actually put these investments.
While at the same time, we said, hey, Ohio, we're vertically integrated, we can get the right number of stores, we can really have a significant market share. That's the market that we need to invest in. Florida, no brainer; Nevada, fits very well, the picture as well and then we're ready to invest in our stores or other stores if we can in Nevada because that makes sense from a strategic standpoint.
So that is something that came through the conversations, through the visits, through that journey, I would say that we took together as a team over the first, let's say, three months. And then, so that's more of a Q4 in January and then that's when we started taking actions from Arizona, Illinois, but also right sizing capacities and right sizing the teams as we did during Q1.
RS: And in addition to knowing where to focus, would you say that building a loyal consumer base is, kind of the same across sectors, which is, I would imagine quality and pricing and attentiveness to the consumer.
DG: Yeah. Yes, I really think that retailers today across the different industries, across the different sectors, focus very much on how do they build a loyal customer base, and there is some, you know, I don't know if it's a secret sauce, but kind of ingredients that we have to use everywhere to make that happen. The one thing about cannabis that that to me is super interesting is, so I come from the luxury industry, and you know how luxury tried to build that loyalty because they are, those are high value customers, right?
And I venture to say that cannabis customers are actually as high value customers than luxury customers because a luxury customer on average spend $500 to $600 a visit, comes 3x a year. Value at $1,500 to $2,000. A cannabis customer, let's say comes 25x a year spends depending on the state's $70 to $100, at the end of the day, it's a $2,000 customer value a year. But I would take any day a customer that I can build a relationship by seeing 25x a year over a customer that I can see 3x a year.
So, actually, we're an industry that because of that frequency. And also, because I think this is a pretty intimate conversation and relationship that you build because you're here to help people. And I don't make any difference between rec and medical from that standpoint. That creates really an ability to create, to build relationships and to build loyalty, probably much better that you can do in most other retail industries. So, yes, there's recipes, and things to do, but I think that this is a great industry to do it.
RS: Yeah, I think that's such a good point. And to the point about the cannabis being such a subjective experience and that's so inherent to the whole transaction really. Yeah, I know people that will go to, it doesn't matter what the store looks like, it doesn't matter what the packaging looks like, the experience that they get from a certain chocolate. It's the only one that, you know, like it's so unique to that experience. So, I think that's a really, somewhat overlooked point, and a really nice point to bring up.
So, as we're looking out ahead and as we mentioned before, it's a somewhat depressing investment landscape to look at, at this point and we're seeing share prices totally decimated. I mean, who would have thought Ayr would be below a dollar ? It would not be me, and I think it would not be a lot of other investors in the stock. I think something that people are pointing to that are bullish on the industry, much like myself are the fact that these stocks are really cheap right now. And I think to that point, certainly in the retail investing community are looking to insider buying. Is there anything that you would say to the investing community in terms of, you know, insider buying at Ayr and how you're thinking about that or how you guys are talking about that?
DG: Yeah. Well, we're – because we're getting into the earning season, we're in a place that we cannot invest right now, meaning as I'm sure investors know, and you guys know, I personally invested the day before we got into that blackout period in December and we haven't gone out of it since, mainly because of the earning season, but also because of the situation that we're dealing with from a depth standpoint and how we're managing that. So, from that standpoint, we're first never in a place to give any advice to anyone obviously. But also, we're not in a place where I can or we can invest right now. I personally did it the last day I could in, at the end of December. And that's, yeah, that's the only answer unfortunately that I can give you.
RS: I think that's a good answer. I think that's very clarifying for people that aren't aware of the dates or that aren't necessarily paying attention. And, I think that's a really good answer actually. The other thing that I wanted to ask in terms of how you see the industry developing and kind of as we're winding down, in terms of, you know, looking at companies coming in and I know that this is also something that you can't necessarily speak to in detail, but you're, you're thinking about it as CEO of Ayr in terms of making more acquisitions or being an acquire or the players coming into the industry, how would you share with investors, how you're thinking about, let's say the next 12 months?
DG: Well, the first thing I would say is that considering the current situation, our, our focus is on cash. And right now, this is our focus for, let's say the next couple of quarters, few quarters for us, that's what matter. That doesn't mean that we're not going to do anything from an investment standpoint. But that's obviously limiting considering that our clear focus very short term is on cash and everything I shared before. That being said, in the states that we're in right now, we know that we're in there because we believe in these states and then we're happy to doubling down wherever we can in those states.
So that's a first I would say answer, I think the situation will look different, let's say at the end of 23 months or 12 months from now. And I think we'll look at it differently at that time. So, and then the other part of the answer to that is, when we don't mean to be in 40 states or 50 states when the states open, we've made clear choices in the states that we're in and we will continue to be very careful about what states we want to be in.
So, that's the way we're thinking about it. Cash is the priority. We want to double down in the states we're in, because we believe in these states wherever we can double down. And overall, we will continue to be very selective in terms of what states we want to be part of. And then we'll see in 2024, 2025 what happens overall in the industry. There's distressed assets obviously left and right, but we'll see how that that moves a few quarter from now.
RS: Well, David, thank you. I really appreciate you taking the time to come on the show and I know you're not doing a lot of these. So, I really appreciate you choosing us as one of the places to come on. Thanks for diving so deep. I think that it shows investors a lot about the stock when the CEO is willing to be so forthright and thoughtful. I may add.
DG: Well, thank you so much and really enjoyed it and I hope we have a chance to do it again.
RS: Absolutely. Absolutely. I'm happy for you to share with where investors if they can reach you? And also, I want to ask you, are you from Paris in France?
DG: I'm from Normandy. So, I'm not too far from Paris and worked a lot in Paris. So, I've been there a lot.
RS: Yes, I was going to ask, if you had to say one place to visit in Paris, what would it be?
DG: I think that the, if you can get the reservation there, the restaurant that is on the second level of the Eiffel Tower called the Jules Verne is an amazing place to have dinner. It's an amazing restaurant and you can't find another place where you'll have the view like the one you have from that place.
RS: Nice, nice. We're not just cannabis here, we're a full service podcast. Any way that investors can get in touch with you or just the general Ayr website?
DG: I think it's through the Ayr website , through our IR, meaning Investor Relationship team. That's the best way and I think it's important to be available. So, my commitment is to be as available as I can be to any investor.
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Ayr Wellness CEO David Goubert Focused On Debt And Cash